A Fate of House of Lehman

The share price of Lehman has plummeted by more than 40 % on the NYSE yetserday on concern about Lehman's capital raising abilities. The share price was now below $10 and S&P has issued a possible downgrade of Lehman's credit rating by more than one notch. It has just reminded me of Yamaichi's failure almost 10 years ago. However, I do believe that Lehman is neither Yamaichi nor Bear Stearns. Today, Lehman will announce its third quarter earnings and key initiatives today, a week earl er than it was originally planned.

On the other hand, it is getting much clearer to me that the asset quality is still deteriorating around the globe. This is true of real estates. During the go-go days, acquisition guys has created a phantom story so that the underlying property may hit a high-teen IRR after the leverage; however, asset managers have, in reality, had difficulties and challenges to meet the initial business plan. At early days, it was OK, because a cap rate had been on the decrease. To put it another way, when the property hits DSCR covenant, funds were able to end up with its exit with a decent profit. Many potential issues in terms of asset management have yet to be made clearly outstanding.

Now, the market has seen a sharp increase in cap rate and credit crunch; so liquidation is not anymore a wide card for the troubled properties.